Swiss franc and U.S. dollar in final stages of impulsive decline: Elliott Wave

The U.S. Dollar Index (NYBOT:DXZ13) is back at the lows but downside could be limited if we consider a bullish divergence on the RSI and possible ending diagonal in wave (v) position. As such, bullish reversal could happen soon, ideally from around 79.50, at 200% extension level of wave (iv). Elliott Wave traders will also know that after every five-wave move trend will reverse in the opposite direction in three legs. We can already count five waves down from August 2013 high, so reversal could be near.

USD/CHF

On USD/CHF (FOREX:USDCHF) we have very similar scenario, five waves down with an extended impulsive decline from 0.9453 so market could find a low and reverse up in three legs. Support for current blue wave (v) that is in progress comes in at 0.8880/0.8900.

Impulse extension Most impulses contain what Elliott called an extension. An extension is an elongated impulse with exaggerated subdivisions. The vast majority of impulses contain an extension in one and only one of their three actionary subwaves.

The fact that extension typically occurs in only one actionary subwave provides a useful guide to the expected lengths of upcoming waves. For instance, if the first and third waves are about equal length, the fifth wave will likely be a protracted surge. Conversely, if wave three extends, the fifth should be simply constructed and resemble wave one. In the market, the most commonly extended wave is wave 3.

About the Author

Gregor Horvat, based in Slovenia, has been in the forex markets since 2003. He is a technical analyst and individual trader who has worked for Capital Forex Group and TheLFB.com. He also is founder of forex services on www.ew-forecast.com. EW-Forecast.com provides technical analysis of the financial markets, highlighting behavioral patterns based on the Elliott Wave Principle (EWP). Website: http://www.ew-forecast.com/